When it comes to cryptocurrency, Bart Stephens, co-founder and managing partner at Blockchain Capital, the first venture capital fund to invest in the blockchain technology sector, knows his stuff. Formerly the EVP of venture investment for Ivanhoe Capital Corp, a founding investor of Oncology.com, and a cofounder of Stephens Investment Management (a nano-cap-focused hedge fund), the blockchain and bitcoin guru recently brought his expertise to Chicago as a featured speaker at the Invest for Kids conference. Here, he answers our most pressing questions about the “cryptic” currency.
Make It Better: Give us your elevator pitch — What is bitcoin, and how does it work?
Bart Stephens: Bitcoin is a new type of asset that functions as “Gold 2.0,” and it exists outside the traditional financial system (banks and governments). Bitcoin is intertwined with and enabled by blockchain technology. Under the hood of bitcoin is the blockchain: a worldwide, peer-to-peer network of computers all running the same open source software. This system is the largest computational resource that has ever been created and it is virtually free to use. The important ideas that underpin blockchain technology are about achieving consensus through incentives in a decentralized, distributed, and ultra-secure manner.
The IRS intends to tax cryptocurrencies just like other assets and therefore subject bitcoin trading to capital gain taxes. What reactions have you experienced from bitcoin traders?
Different financial institutions have differing opinions on how to categorize and monitor cryptocurrencies. The Internal Revenue Service (IRS) treats bitcoin like “digital property,” and therefore it is subject to short-term and long-term capital gains. You have to pay your taxes! The Department of the Treasury and Federal Reserve have indicated that cryptocurrencies are not legal tender or a currency; The Commodity Futures Trading Commission (CFTC) sees it as a digital commodity; and the Securities and Exchange Commission (SEC) has indicated that some crypto assets might be securities (like a stock or a bond).
There have been many media reports of crypto exchanges losing customer coins that were held in their custody and of other hacks related to bitcoin. What advice can you give to owners of cryptocurrencies on how they should secure them?
Coinbase is the market leader, as it makes the purchase and storing of bitcoin and other crypto assets secure and easy to use, but other services such as Robinhood, Square, and Circle are also efficient.
Facebook and Cambridge Analytica have come under fire for the misuse of the personal information from as many as 87 million Facebook accounts. Could the blockchain have prevented the release or misuse of personal data?
The core innovation of blockchain technology is that decentralized networks based on cryptography can now encroach upon the turf of traditional centralized trust-based authorities. Centralized trust-based authorities include banks, technology monopolies, health insurance companies, and even governments. An increasing number of Americans are starting to ask questions like: Do I trust Facebook with my online identity? Do I trust banks with my money? Do I trust insurance companies with my health records? Our view is that blockchain technology might be the answer to many of these thorny questions in our digital age.
Finally, since a high of near $20,000 on Dec. 17, 2017, the price of bitcoin has been quite volatile, trading at approximately $8,000 at the time of this interview. A year from now, will it be higher? Lower? About the same?
I focus on the ideas and the technology made possible by blockchain, not the fluctuating price of bitcoin. While bitcoin is the best-known cryptocurrency, there are over a thousand crypto assets on the market and they are all very volatile and high risk/high return. Interestingly, one in three millennials would rather own bitcoin than stocks, bonds, real estate, or commodities.
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Joshua Streckert is the founder and managing partner of SJ Equity Partners, L.P., a private investment partnership focusing on short-term long/short equity-trading strategies. Previously he worked in fixed-income derivatives trading, valuations, and risk management for Lehman Brothers and Bank of America. A graduate of Northwestern University, he is passionate about supporting his alma mater, as well as the American Red Cross.
